Risk Management and Government Pools How They work and Why

What are Government Pools?

Government pools are a form of risk management where small local governments within a single state—towns, small cities, counties, water districts, parks & recreation, public bus lines, etc.,—join together to form a non-profit association to share the risk of loss. The members of the pool collectively self-insure their insurance exposures through a participation agreement. For more Information: www.reduceyourworkerscomp.com

Most government pools operate along the same principles as an insurance company, but the membership is limited to the governmental units within their state. The members of the government pool elect a Board of Trustees from their members, The Trustees are responsible for the strategic direction of the pool. The Trustees can operate the pool or they can select a management team to oversee the management duties of the pool.

Why are They Formed?

During the times of hard insurance markets (when underwriting standards become more rigid and insurance premiums increase due to higher than expected insurance claim cost), it often becomes very difficult or impossible for local governments to buy certain types of insurance coverage from insurance carriers. Insurance companies often look at governmental entities as a higher risk, resulting in escalating premiums if they provide insurance coverage at all.

Government pools are normally created to provide both a consistent and affordable means of insurance coverage. The pools are not designed to create an underwriting profit, but to provide the insurance coverage needed. Therefore, the rates paid by pool members do not include an element of profit, making the overall rates paid by pool members more affordable.

What are Their Objectives?

The primary objective of government pools is to meet the insurance needs of the municipal governments and governmental entities that are members of the pool. By joining together, the members of the pool can jointly manage risk and prevent changes in the insurance market from creating financial difficulties for their members’ budgets. The government pool provides the members an effective way to control the cost of insurance.

What do They Do?

Most government pools are multi-line providers of health insurance, liability insurance, workers’ compensation insurance and property insurance to their members. The government pools not only provide the insurance coverage, they also manage the member’s claims either through their own staff of adjusters or by providing oversight of a Third Party Administrator hired to handle the insurance claims.

In addition to providing insurance coverage, the government pools usually provide loss control services to the members. They encourage members to educate themselves on how to prevent or minimize their losses.

What is the Member’s Contribution?

The members’ contribution is calculated along the same lines principles as they would be with an insurance company. For workers’ compensation the contributions are based on each member’s payroll with rates established by the Board of Trustees for the government pool. Based upon the pool’s reserves and assets, the rates charged to the members may be reduced upfront by the pool’s management.

Pool members are given the option to lower their insurance cost even further. If the member can afford to carry a high deductible, they can elect to do so. The pool’s claims adjusting office will handle the claim to a conclusion and then have the member reimburse the amount of their deductible to the pool.

What are Their Benefits?

In addition to providing a lower cost for insurance coverage, government pools often provide most or all of the benefits of a large insurance company, including:

1. Payroll audits are usually conducted annually at no cost to the members
2. The pool will have on staff or under retainer legal counsel to assist the members in local government specific issues
3. Loss control programs
4. Safety programs
5. Guidance is provided to members on risk management issues and insurance issues
6. Claim handling services are provided

1. Electronic claim reporting or toll free claim reporting
2. PPO network
3. Medical bill review
4. Pharmacy program
5. Nurse case managers
6. Vocational case managers
7. Litigation management

Summary:

Government entities can lower their overall cost of insurance by participating in a risk-sharing governmental pool.

The non-profit pools, owned and operated by the members, save the local taxpayers money by reducing the operating cost of the local governmental entity.

Author Robert Elliott, executive vice president, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers’ Compensation costs, including airlines, health care, manufacturing, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. He can be contacted at: [email protected] or 860-553-6604.

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers’ comp issues.

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